chapter 9 Ethics,

Corporate Social
Responsibility,
Environmental
Sustainability,
and Strategy

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 Learning Objectives
This chapter will help you understand:
1. How ethical standards in business are no different from
the ethical norms of the larger society in which a
company operates.
2. What drives unethical business strategies and behavior.
3. The costs of business ethics failures.
4. The concepts of corporate social responsibility and
environmental sustainability and how companies
balance these duties with economic responsibilities to
shareholders.

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 What Do We Mean By Business Ethics?

Business ethics:
• Is the application of general ethical principles to the
actions and decisions of businesses and the conduct of
their personnel.
• Are not materially different from ethical principles in
general because business actions must be judged in
the context of society’s standards of right and wrong.

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 Where Do Ethical Standards Come From—Are
They Universal or Dependent on Local Norms?

Sources for Ethical Standards

The school of ethical universalism

The school of ethical relativism

Integrate social contracts theory

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 The School of Ethical Universalism
Ethical universalism:
• Holds that common understandings across multiple
cultures and countries about what constitutes right and
wrong give rise to universal ethical standards that apply
to all societies, all firms, and all
businesspeople.
Effect on business ethics:
• Whether a business-related action is right or wrong is
judged by universal standards.

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 The School of Ethical Relativism
Ethical relativism:
• Holds that differing beliefs, customs, and behavioral
norms across countries and cultures give rise to multiple
sets of standards of what is ethically right or wrong.
Effect on business ethics:
• Whether business-related actions are right or wrong
depends on local ethical standards.

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 Examples of Ethical Relativism Issues

Variations in Ethical Standards

The use of underage labor

The payment of bribes and kickbacks

Relativism can result in multiple sets of standards

The use of local morality to guide ethical behavior

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 Ethics and Integrative Social Contracts Theory

• Provides a middle-ground balance between

universalism and relativism
• Posits that the collective views of multiple
societies form universal (first order) ethical
principles that all persons have a contractual
duty to observe in all situations
• Within contract, cultures or groups can specify
locally ethical (second-order) actions

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 Application of Integrated Social Contracts
Theory to Multinational Business
Effects on ethical standards
• Adherence to universal ethical norms takes precedence
over local norms.
• A local custom is not ethical if it violates universal ethical
norms.
• Application of codes of ethics should first follow
universal standards with allowance for local ethical
diversity and influence.

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What Are the Drivers of Unethical Strategies
and Business Behavior?
Drivers of unethical business behavior
• Faulty internal oversight allows self-dealing in the pursuit
of personal gain, wealth, and self-interest.
• Short-termism pressures managers to meet or beat
short-term performance targets.
• A culture that puts profitability and business
performance ahead of ethical behavior drives unethical
behavior and strategies.

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 The Visible Costs Companies Incur When
Ethical Wrongdoing Is Discovered
Visible costs
• Government fines and penalties
• Civil penalties arising from class-action lawsuits and
other litigation aimed at punishing the company for its
offense and the harm done to others
• The costs to shareholders in the form of a lower stock
price (and possibly lower dividends)

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 The Internal Costs Companies Incur When
Ethical Wrongdoing Is Discovered
Internal administrative costs
• Legal and investigative costs incurred by the company
• The costs of providing remedial education and ethics
training to company personnel
• The costs of taking corrective actions
• Administrative costs associated with ensuring future
compliance

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 The Intangible Costs Companies Incur
When Ethical Wrongdoing Is Discovered
Intangible or less visible costs
• Customer defections
• Loss of reputation
• Lower employee morale and higher degrees of
employee cynicism
• Higher employee turnover
• Higher recruiting costs and difficulty in attracting talented
employees
• Adverse effects on employee productivity
• The costs of complying with harsher government
regulations

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 Strategy, Corporate Social Responsibility,
and Environmental Sustainability
Corporate social responsibility (CSR)
• Is a firm’s duty to operate in an honorable manner,
provide good working conditions for employees,
encourage workforce diversity, be a good steward of
the environment, and actively work to better the quality
of life in the local communities where it operates and in
society at large.

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 FIGURE 9.2 The Five Components
of a Corporate Social Responsibility Strategy

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 The Triple Bottom Line:
Excelling on Three Measures of Company
Performance

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Source: Developed with help from Amy E. Florentino.

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 What Do We Mean by Sustainability and
Sustainable Business Practices?
Sustainability
• Is the relationship of a firm to its environment and its use
of natural resources.
Sustainable business practices
• Are those practices of a firm that meet the needs of the
present without compromising the ability to meet the
needs of the future.

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 The Business Case for CSR and
Environmentally Sustainable
Business Practices
• Increased buyer patronage
• Reduced risk of reputation-damaging incidents
• Lower employee turnover costs and enhanced
recruiting and workforce retention
• Increased revenue enhancement opportunities
due to the use of CSR and sustainability
• CSR and sustainability best serving long-term
interests of shareholders

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